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Why Applied Optoelectronics Inc. Stock Fell 37% in October

One large customer (whose name probably rhymes with "Schlamazon") cut its fiber-optic networking orders in big way.

What happened

Shares of Applied Optoelectronics(NASDAQ:AAOI) fell 37% in October, according to data from S&P Global Market Intelligence. The maker of fiber-optic networking products for enterprise and service providers saw one major client's orders coming in slower than expected, so guidance for the third quarter was lowered across the board.

Image source: Getty Images.

So what

In the middle of October, Applied Optoelectronics took a look at its preliminary Q3 results and decided to issue a warning to its investors. One of the company's largest data center customers had ordered fewer high-speed transceivers than expected, and the shortfall was large enough to lower AOI's Q3 guidance targets by approximately 20%.

At this point, Applied Optoelectronics stock is still up 88% year over year, but the price has also plunged 57% from the all-time high it hit in late July. This is not a stock for risk-averse or faint-hearted investors.

The identity of the company behind those missing data center orders has not been officially confirmed, but it's likely Amazon.com(NASDAQ:AMZN). It's the only data center customer that has provided a large enough share of AOI's revenue in recent years to create a 20% plunge in sales simply by slowing down its orders. However, Amazon is likely to put its purchasing pedal back to the metal after AOI's newer and faster transceivers have been put through their paces in quality control tests, because the e-tailer's data center needs are growing quickly thanks to the success of the Amazon Web Services cloud computing platform.